Survey of State Municipalization Laws On Behalf of the American Public Power Association by, Abby Briggerman Radu Costinescu Ashley Bond Duncan & Allen Washington, DC May 2012 The material provided in this Survey is for informational purposes only and is not for the purpose of providing legal advice. Copyright © 2012 by the American Public Power Association. All rights reserved. Published by the American Public Power Association 1875 Connecticut Ave., N.W., Suite 1200, Washington, D.C. 20009-5715 Forward This Survey of State Municipalization Laws examines and summarizes each of the 50 state’s laws on the issues of whether municipalities have the legal authority to acquire, own and operate an electric utility, and, in the case where a municipality acquires the facilities of an incumbent utility, the laws that determine the price to be paid. The laws regarding these two issues vary broadly across the states. For example, some states such as Alaska have passed laws explicitly providing for the quick condemnation of certain private property, while others such as Oklahoma have passed laws placing a moratorium on the condemnation of electric plant. Similarly, the determination of the price to be paid for electric plant varies widely according to state. Whereas some states let the courts determine “just compensation,” other states let the local public utilities commission make such a determination. Some states have even legislated the calculation of “just compensation.” In reading the laws outlined in this Survey, one should keep in mind the following words of Franklin D. Roosevelt: I therefore lay down the following principle: That where a community--a city or county or a district--is not satisfied with the service rendered or the rates charged by the private utility, it has the undeniable basic right, as one of its functions of Government, one of its functions of home rule, to set up, after a fair referendum to its voters has been had, its own governmentally owned and operated service. That right has been recognized in a good many of the States of the Union. Its general recognition by every State will hasten the day of better service and lower rates. It is perfectly clear to me, and to every thinking citizen, that no community which is sure that it is now being served well, and at reasonable rates by a private utility company, will seek to build or operate its own plant. But on the other hand the very fact that a community can, by vote of the electorate, create a yardstick of its own, will, in most cases, guarantee good service and low rates to its population. I might call the right of the people to own and operate their own utility something like this: a "birch rod" in the cupboard to be taken out and used only when the "child" gets beyond the point where a mere scolding does no good. The “Portland Speech,” September, 1932. Alabama Is there a right for a municipality to establish or acquire an electric system to serve customers or the residents and businesses within the municipal corporate limits? Yes, cities and towns have the right to establish, purchase, maintain and operate electric utilities. Ala. Code § 11-50-1 (2011). Where a municipality proposes to engage in the business of operating an electric utility, and there is already in existence within the territory an electric utility, the municipality must notify the incumbent utility “of its willingness to acquire [the plant] on such terms and conditions as may be agreed upon.” Id. at § 37-4-60; see also id. at § 37-4-65 (limits on applicability of statute). “If the owner fails or refuses to advise such agency within 30 days after receipt of such notice of its purpose to sell such property, then the agency may proceed as provided by law to construct, condemn or otherwise acquire a plant or system within the designated territory.” Id. at § 37-4-61; see also id. at § 37-14-32 (assigning service territories and thereby placing limitations on municipalization). How is the price of the facilities determined? By agreement or, failing agreement as to price, by the Public Service Commission (PSC) upon request of either party. The PSC determines the fair value of the assets based on cost less depreciation, plus severance damages, but not taking into account future earnings, good will or certain real estate rights, and deducting or withholding the value of encumbrances, pending discharge thereof. Id. at § 37-4-62. “If the owner fails to notify the agency of his acceptance and make tender of a deed…or to comply with all other terms and conditions of the order or judgment, the agency may proceed as provided by law to construct or otherwise acquire a plant or system within the territory where the property of such owner or any part thereof is located.” Id. at § 37-4-64. Alaska Is there a right for a municipality to establish or acquire an electric system to serve customers or the residents and businesses within the municipal corporate limits? As a general matter yes, though the authority to do so may be dependent on the municipal charter. While home rule municipalities in Alaska have all legislative power not prohibited by law or charter (Alaska Stat. § 29.04.010 (2012)), general law municipalities have legislative powers conferred by law (id. at § 29.04.020). See also e.g., id. at § 29.20.310 (outlining requirements for municipal utility boards). Municipalities have the authority to condemn property under eminent domain. Id. at §§ 29.35.030 (granting municipalities eminent domain authority), 09.55.240 (public uses for which the right of eminent domain may be exercised includes electric power lines), 09.55.260 (property that may be taken includes certain rights-of- 1 way and the structures and improvements thereon, and the land used in connection with them). Unlike a complaint seeking an order of possession, a municipality may acquire title immediately upon the filing of a “declaration of taking,” in what is known as a “quick-take” procedure where necessity and compensation are left for later determination. Alaska Stat. §§ 09.55.420 (authorizing a municipality to file a declaration of taking along with the complaint), 09.55.430 (contents of a declaration of taking), 09.55.440 (vesting of title upon the filing of a declaration of taking). How is the price of the facilities determined? Where a municipality files a declaration of taking, it must deposit with the court the amount of the estimated compensation stated in the declaration. Alaska Stat. § 09.55.440. Actual compensation is subsequently determined, with interest owing to the former property owner. Id. The court may appoint a master to determine just compensation, or just compensation may be determined by jury trial. Id. at § 09.55.300. The right to compensation or damages accrues as of the date of the summons, and the value of the property as of that date determines compensation. Id. at § 09.55.330. Courts have accepted multiple valuation methods in eminent domain proceedings to determine just compensation, including fair market value, replacement value, and reproduction value. See e.g., City of Kenai v. Burnett, 860 P.2d 1233, 1242 (Alaska 1993). Arizona Is there a right for a municipality to establish or acquire an electric system to serve customers or the residents and businesses within the municipal corporate limits? Yes, municipal corporations have the right to engage in any business or enterprise that any other entity could engage in with a franchise from the municipal corporation. Ariz. Rev. Stat. § 9-511 (2012). This includes the ability to “construct, purchase, acquire, own or maintain within or without its corporate limits…electric and gas plants [and] electric lines for the transmission of electricity.” Id. at § 9-511(a). The decision to municipalize must be approved by a majority vote at a general or special election (id. at § 9-514) and, the municipal corporation must purchase and take over the property and plant of the public utility, if one existed, before it can construct, purchase, acquire or lease any other facility. Id. at §§ 9-515(a) & 9-516(a). How is the price of the facilities determined? “The fair valuation of the public utility shall be the equivalent of the compensation to be paid for the taking of private property for public use as provided by article 2, chapter 8 of title 12 [Ariz. Rev. Stat. §§ 12-1111 to -1130].” Ariz. Rev. Stat. § 9-515(c). The amount is determined by one of the following methods (id.): 2 (1) By agreement between the municipal corporation and the public utility. (2) By arbitrators chosen in a manner agreed upon at the time by the municipal corporation and the public utility. (3) By a court of competent jurisdiction determining the compensation for the taking of private property for public use as provided by article 2, chapter 8 of title 12 (Ariz. Rev. Stat. §§ 12-1111 to -1130). Arkansas Is there a right for a municipality to establish or acquire an electric system to serve customers or the residents and businesses within the municipal corporate limits? Yes. Ark. Code § 14-200-106 (2012). Buyout of the existing utility must be approved by the municipal council or city commission after public hearing, and by a majority of voters in a general or special municipal election. Id. at § 14-200-107. How is the price of the facilities determined? As agreed by the parties, or, failing agreement, as determined by order of the Arkansas Public Service Commission after public hearing. Id. at § 14-200-108. California Is there a right for a municipality to establish or acquire an electric system to serve customers or the residents and businesses within the municipal corporate limits? Yes.